Good Governance Policies in the Post-Enron Environment

THE EFFECTIVE BOARD

Good Policies: First Line of Defense for Post-Enron Governance

By Barry S. Bader

The governance challenges raised in the post-Enron environment are motivating many boards and their general counsels to draft new board policies and tighten up existing ones. While the three duties of fiduciary responsibility — due care, loyalty and obedience to charitable purpose — haven’t changed, the expectation of what constitutes reasonable and prudent action by an officer or director is higher and more specific.

Board-approved policies set standards and define how the board carries out its most fundamental responsibilities, from CEO evaluation to oversight of the external and internal audits. Strict policies, however, are a double-edged sword. In court, documenting that strong policies were followed is the first line of defense that a board diligently executed its responsibilities. At the same time, opposing attorneys will pounce if policies are ignored. “It’s fine you have a policy, but you have to follow it and demonstrate that you have followed it,” stresses Michael Peregrine, health attorney with Gardner, Carton & Douglas in Chicago.

Top 10 List

Peregrine recommends that boards adopt 10 specific policies for the new environment of increased corporate accountability. Some are familiar, but others are less common and deserve serious consideration.

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